Calpine Reports Full Year 2018 Results

Source Press Release
Company Calpine Corporation 
Tags Strategy - Corporate, Financial & Operating Data
Date March 08, 2019

Calpine Corporation:

Summary 2018 Financial Results (in millions):

        Year Ended December 31, 
        2018        2017      % Change 
                       
Operating Revenues          9,512            8,752        8.7 
Income from operations          762            378        101.6 
Cash provided by operating activities          1,101            949        16.0 
Net Income (Loss)1          10            (339      NM   
Commodity Margin2          3,033            2,708        12.0 
Adjusted Unlevered Free Cash Flow2          1,634            1,397        17.0 
Adjusted Free Cash Flow2          976            751        30.0 

________
1 Reported as Net Income (Loss) attributable to Calpine on our Consolidated Statements of Operations.
2 Non-GAAP financial measure, see “Regulation G Reconciliations” for further details.


Calpine Corporation today reported Net Income1 of $10 million for the year ended December 31, 2018, compared to a Net Loss of $339 million in the prior year. The year-over-year increase in Net Income was primarily due to an increase in Commodity Margin2 in each of our wholesale regional segments and a decrease in operating and maintenance expense driven by the timing of maintenance outage costs for the year ended December 31, 2018, when compared to 2017. Cash provided by operating activities for 2018 was $1,101 million compared to $949 million in the prior year. The increase in cash provided by operating activities in 2018 was primarily due to an increase in income from operations, adjusted for non-cash items, partially offset by an increase in working capital employed resulting from the year-over-year change in net collateral margining requirements associated with our commodity hedging activity.


REGIONAL SEGMENT REVIEW OF RESULTS

Table 1: Commodity Margin by Segment (in millions)

          Year Ended December 31, 
          2018        2017        Variance 
West          1,060          970          90   
Texas          646          552          94   
East          970          790          180   
Retail          357          396          (39 
Total          3,033          2,708          325   

West

Commodity Margin in our West segment increased by $90 million in 2018 compared to the prior year. Primary drivers were:

              new contracts at our Metcalf and Sutter Energy Centers that became effective in 2018, 
              higher spark spreads and 
              higher generation, partially offset by 
            –    lower contribution from hedges. 

Texas

Commodity Margin in our Texas segment increased by $94 million in 2018 compared to the prior year. Primary drivers were:

              higher spark spreads in ERCOT and 
              higher revenue associated with the sale of environmental credits in the first quarter of 2018 with no similar activity in 2017, partially offset by 
            –    lower contribution from hedges. 

East

Commodity Margin in our East segment increased by $180 million in 2018 compared to the prior year. Primary drivers were:

              higher regulatory capacity revenue in PJM and ISO-NE, 
              higher spark spreads in ISO-NE and 
              a gain recorded during the first quarter of 2018 associated with the cancellation of a contract, partially offset by 
            –    lower contribution from hedges and 
            –    lower spark spreads in PJM. 

Retail

Commodity Margin in our Retail segment decreased by $39 million in 2018 compared to the prior year, primarily due to higher purchased energy and capacity supply costs in Texas and the Northeast.


LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

Table 2: Liquidity (in millions)

          December 31, 2018        December 31, 2017 
Cash and cash equivalents, corporate(1)          141          228 
Cash and cash equivalents, non-corporate          64          56 
Total cash and cash equivalents          205          284 
Restricted cash          201          159 
Corporate Revolving Facility availability(2)          966          1,161 
CDHI letter of credit facility availability(3)          49          56 
Other facilities availability(4)                  — 
Total current liquidity availability          1,428          1,660 

____________ 
(1)    Our ability to use corporate cash and cash equivalents is unrestricted. Includes $52 million and $4 million of margin deposits posted with us by our counterparties at December 31, 2018 and 2017, respectively. 
(2)    Our ability to use availability under our Corporate Revolving Facility is unrestricted. For the year ended December 31, 2018, we utilized an incremental approximately $95 million in capacity primarily through letter of credit issuances. Additionally, on March 8, 2018, the capacity of our Corporate Revolving Facility decreased by $320 million to $1.47 billion, only to be subsequently increased on May 18, 2018, by approximately $220 million to approximately $1.69 billion. 
(3)    Our $300 million CDHI letter of credit facility is restricted to support certain obligations under PPAs and power transmission and natural gas transportation agreements as well as fund the construction of our Washington Parish Energy Center. Pursuant to the terms and conditions of the CDHI credit agreement, the capacity under the CDHI letter of credit facility will be reduced to $125 million on June 30, 2019. The decrease in capacity will not have a material effect on our liquidity as alternative sources of liquidity are available. 
(4)    We have two unsecured letter of credit facilities with third party financial institutions totaling $200 million. One of the facilities, with commitments totaling $150 million, matures partially in June 2020 and fully by December 2020. The other facility, with commitments totaling $50 million, matures in June 2020. 

Liquidity was approximately $1.4 billion as of December 31, 2018. Cash and cash equivalents decreased in 2018 primarily due to net repayments of debt, consistent with our announced plan to reduce leverage, partially offset by cash provided by operating activities.

Table 3: Cash Flow Activities (in millions)

        Year Ended December 31, 
        2018        2017 
Beginning cash, cash equivalents and restricted cash        443          606   
Net cash provided by (used in):                 
Operating activities        1,101          949   
Investing activities        (392        (211 
Financing activities        (746        (901 
Net decrease in cash, cash equivalents and restricted cash        (37        (163 
Ending cash, cash equivalents and restricted cash        406          443   
                         

Cash provided by operating activities in 2018 was $1,101 million compared to $949 million in the previous year. The year-over-year increase was primarily due to an increase in income from operations, adjusted for non-cash items, partially offset by an increase in working capital employed resulting from the period-over-period change in net collateral margining requirements associated with our commodity hedging activity.

Cash used in investing activities was $392 million during 2018 compared to $211 million in the prior year. The increase was primarily driven by increased capital expenditures associated with additional capitalization of seasonal maintenance outage costs, partially offset by a distribution received in 2018 from an unconsolidated subsidiary.

Cash used in financing activities was $746 million during 2018 compared to $901 million in the prior year. Cash usage in both 2017 and 2018 is primarily driven by normal debt service payments during each respective period as well as the pay down of the $550 million 2017 First Lien Term Loan in 2017 and the repurchase of $390 million in aggregate principal Senior Unsecured Notes during 2018. Further, in 2019, through the date of this release, we repurchased an additional $48 million in aggregate principal of our Senior Unsecured Notes.

PG&E Bankruptcy

On January 29, 2019, PG&E and PG&E Corporation each filed voluntary petitions for relief under Chapter 11. We currently have several power plants that provide energy and energy-related products to PG&E under PPAs, many of which have PG&E collateral posting requirements. Since the bankruptcy filing, we have received all material payments under the PPAs, either directly or through the application of collateral. We also currently have numerous other agreements with PG&E related to the operation of our power plants in Northern California, under which PG&E has continued to provide service since its bankruptcy filing. We cannot predict the ultimate outcome of this matter and continue to monitor the bankruptcy proceedings.

Our power plants that sell energy and energy-related products to PG&E through PPAs, include Russell City Energy Center and Los Esteros Critical Energy Facility which both achieved commercial operations in 2013. As of December 31, 2018, our Consolidated Balance Sheet included $1.1 billion (including $169 million attributable to the noncontrolling interest) and $504 million (including $85 million attributable to the noncontrolling interest) in net long lived assets and non-recourse project finance debt, respectively, associated with these two power plants. Since the bankruptcy filing, we have received all material payments under both PPAs, either directly or through the application of collateral. We cannot predict whether the PPAs will be assumed through the bankruptcy proceeding, however, we believe that even if the contracts were not to be assumed, the undiscounted future cash flows of the power plants would exceed the carrying values of each of the facilities. We continue to monitor the bankruptcy proceedings for any changes in circumstances that would impact the carrying value of either power plant.

As a result of PG&E’s bankruptcy, we are currently unable to make distributions from our Russell City and Los Esteros projects in accordance with the terms of the project debt agreements associated with each related project. If PG&E does not seek to assume our PPAs through their bankruptcy proceedings, unless otherwise modified, we will incur an event of default under the Russell City and Los Esteros project debt agreements 180 days after the date of PG&E’s bankruptcy filing. We continue to monitor the bankruptcy proceedings and are assessing our options.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd